Regulatory Capital: Regulatory Capital and Standardized Approach for Risk-Weighted Assets

BayCoast Bank, a community bank, supports the Agencies' objectives of enhancing risk sensitivity and consistency in capital requirements. However, they petition for specific modifications, including reducing the Mortgage Servicing Assets (MSA) risk weight to 100%, recognizing private mortgage insurance (PMI) as a risk mitigant, and incorporating broader credit quality factors beyond LTV.

BlackRock, Inc. supports the proposed revisions to the U.S. capital framework to enhance risk sensitivity and align with Basel standards. However, they recommend specific adjustments to risk weights for closed-end funds, investment-grade corporate exposures, and high-quality project finance to avoid imposing undue costs on financial intermediation.

The International Capital Market Association (ICMA) and the International Securities Lending Association (ISLA) submitted a joint comment supporting the recognition of modular, cross-product netting architectures (specifically the CPMA) within the Basel III Endgame framework. They argue that this approach preserves operational efficiency and accurately reflects net economic credit exposure, while also requesting a specific carve-out for bankruptcy-remote security pledge models to ensure capital efficiency.

The Housing Policy Council, a trade association of mortgage lenders and insurers, supports the proposed rules for aligning capital requirements with the risk of mortgage exposures. They argue the rules will improve risk sensitivity, promote a level playing field, and unlock lending capacity, while also suggesting specific refinements to risk weights for mortgage servicing assets and private mortgage insurance.

The Coalition for Derivatives End-Users, representing 94 companies, associations, and municipalities, opposes the proposed capital requirements for uncleared derivatives with commercial end-users. They argue that the proposal creates redundant capital charges, places U.S. companies at a competitive disadvantage compared to the EU, and imposes undue costs on legitimate hedging activities.

The Committee on Capital Markets Regulation, an independent 501(c)(3) research organization, expresses broad support for the proposed Basel III "finalization" reforms. They argue that the proposals improve the alignment of capital requirements with actual risks and will enhance the ability of banks to support the real economy.

Arch Capital Group, Ltd. supports the agencies' intent to implement risk-based capital requirements but argues that the current proposals fail to recognize the loss-mitigating benefits of private mortgage insurance (MI). They propose specific amendments to allow banks to recognize MI coverage (subject to a counterparty haircut), unlock insurance-based credit risk transfer (CRT) by expanding the definition of eligible guarantors, and reduce risk weights for prudentially regulated eligible guarantors.

The Structured Finance Association (SFA) opposes several provisions in the proposed rules, particularly the addition of the word "solely" to the definitions of traditional and synthetic securitization, arguing it creates arbitrary capital requirements and ignores economic substance. They also request clarifications on relying on existing interpretive frameworks for investment firm exposures and advocate for several specific modifications to risk-weighting and parameter calculations.

U.S. Mortgage Insurers (USMI), representing private mortgage insurance companies, supports the agencies' efforts to modernize bank capital rules. They argue that the final rules should explicitly recognize private mortgage insurance (MI) in the calculation of risk weights for residential mortgage exposures to better reflect its role in reducing loss severity and supporting affordable homeownership.

The Wisconsin Bankers Association (WBA) supports the proposed revisions to the regulatory capital rule, praising the data-driven effort to improve risk sensitivity and reduce complexity. However, the association urges the agencies to ensure that capital relief benefits are shared more evenly across the industry, particularly for commercial and agricultural lending, to avoid widening the gap between community banks and larger institutions.